Modeling Gift Choice: The Effect of Uncertainty on Price Sensitivity

Abstract

Gift giving generates high revenues for retailers. It is also marked with significant welfare, or deadweight, loss in that givers tend to pay more than the receivers’ valuation. Previous research has attributed this discrepancy to givers’ inaccurate predictions of the receivers’ preferences. This research demonstrates that reduced price sensitivity is another important source of the deadweight loss: givers use gift prices to signal the importance of their relationship with the receiver. In order to demonstrate this mechanism, the authors develop a new Bayesian gift-choice model that captures both preference predictions as well as the signaling value of price. The model is estimated on two choice-based conjoint studies for gift giving that allow for the manipulation of the giver's uncertainty about the receiver's preferences. Both studies show the strong signaling value of price, especially when givers are uncertain about receivers’ preferences. Decomposition of the deadweight loss shows that the signaling value of price is an important source of welfare loss, especially in markets with heterogeneous prices. These findings have key implications for the gift industry.

To whom and when to give: Effects of intimacy and obligation on expressive motives, gift choice, and information search in gift giving

“…For example, some researchers have focused on moderating variables that might influence gift-giving behavior such as occasions, giver-receiver relations, and givers' personal characteristics (e.g., Antón et al, 2014;Babin et al, 2007;Baskin et al, 2014;Palan, 2001;Weisfeld-Spolter, Rippé, & Gould, 2014). Others have focused on comparing gift giving (choice for others) and choices for oneself (e.g., Pandya & Venkatesh, 1992;Wang & Lans, 2018). Previous studies that tried to deal with giftgiving process adopted conceptual approach or performed qualitative research (e.g., Joy, 2001;Larsen & Watson, 2001).…”

The Effect of Individual Online Reviews on Purchase Likelihood

“…Additionally, consumers often rely on price as an indicator for product quality (Erdem, Keane and Sun 2008;Guo and Jiang 2016;Wang and Van der Lans 2018); a higher price is seen as a signal of higher product quality. Thus, for products priced low relative to others in the category, reviews with 4-or 5-star ratings should impact purchases.…”

Gift Purchases as Catalysts for Strengthening Customer–Brand Relationships

“…Through gifts, donors try to signal their empathy, thoughtfulness, and closeness to and intimate knowledge of the gift recipient (Ward and Broniarczyk 2016). Moreover, gift purchasers want to convey generosity and thus tend to display a higher willingness to pay (Fuchs, Schreier, and Van Osselaer 2015; Moreau, Bonney, and Herd 2011), using gift prices to signal to the recipient the importance that the donor attaches to the relationship (Wang and Van der Lans 2018). Signaling in gift purchasing is both direct, in the one-to-one relationship between donor and recipient, and indirect, relative to a wider audience (e.g., when publicly presenting a gift at a birthday party, encompassing people the donor may know personally; Wooten 2000).…”